Medtech M&A back on the up

Analysis

The end of 2015 saw a dearth of big medtech deals, but things seem to be looking up. There have been five acquisitions already this week, with two of them worth well over $1bn and another approaching the mega-deal mark (see table below).

One reason for the surge in spending could be that after a period of over-optimism, market volatility is making private companies more realistic about their potential valuations. With the IPO exit route seemingly shut for now, we should expect to see more M&A as bigger players take the chance to bag a relative bargain.

The window of opportunity might not be open for long. After a bad start to 2016, biotech investors could be tempted to invest in the relative safety of medtech, pushing prices up again. The Nasdaq biotech index has fallen 23% so far in 2016, while the Dow Jones US medical equipment Index is down only 5% over the same period.

But at least some commentators believe that this will not slow the pace of acquisitions. Zeshan Muhammedi, co-founder of the healthcare crowdfunding specialist FundRx, which invests in both medtech and biotech, told EP Vantage that medtech M&A activity would remain strong, especially while “capital remains cheap for larger companies”.

He added that medtech stocks should continue to do comparatively well thanks to a shorter gestation period for products versus biotech, which makes the path forward clearer to investors. But “biotech activity isn’t really indicative of medtech activity, in my opinion. Medtech more or less lives in its own universe,” Mr Muhammedi said.

Deals, deals, deals

Although 2015 saw the value of medtech acquisitions cross the $100bn barrier for the first time, there were some worrying signs towards the end of the year, with no mega-deals announced in the final quarter (All-time high for medtech M&A, January 18, 2016). 

The latest spending spree should therefore provide some comfort, especially to smaller companies that are finding it increasingly hard to bring in VC funding. Abbott has made two purchases in the space of two days. The latest, of Kalila Medical for an undisclosed fee, complements its 2014 acquisition of Topera Medical.

Both companies’ products are used during cardiac ablation, a therapy for atrial fibrillation that is delivered via catheters. But, while Topera was focused on locating arrhythmias, Kalila’s main product, the Vado steerable sheath, is used to help introduce catheters into the vasculature.

The sheath is CE marked in Europe and has 510(k) clearance from the FDA – highlighting another trend of companies looking to acquire only once their targets have approved products.

The Kalila buy came after Abbott added more point-of-care testing capabilities to its existing diagnostics unit with the purchase of Alere (Abbott pays $5.8bn to climb the diagnostics rankings, February 1, 2016). 

Five medtech deals in two days
Target Acquirer Sector Price Date
Alere Abbott In vitro diagnostics $5.8bn February 1
Bellco Medtronic Haemodialysis Undisclosed February 1
Sage Products Stryker ICU devices $2.8bn February 2
Creganna Medical TE Connectivity Interventional device components $895m February 2
Kalila Medical Abbott Cardiovascular Undisclosed February 2

Medtronic, a serial acquirer, has also bolstered its existing portfolio, buying the Italian haemodialysis specialist Bellco for an undisclosed amount. Bellco will join Medtronic’s recently formed renal care solutions business, and is yet another investment in a diabetes-related area (IBM collaboration is Medtronic's fifth diabetes deal in a month, April 14, 2015). 

Stryker’s acquisition of the hospital equipment developer Sage Products and TE Connectivity’s $895m purchase of Creganna Medical round out this week’s deals – so far.

TE, which makes components for various industries including the automotive and communications sectors, is expanding its medical device offering with Creganna, which provides parts and design services for minimally invasive devices. The deal follows TE’s purchase of the catheter developer AdvancedCath for $190m last year.

In a way, the company is going back to its roots: it was originally part of Tyco International, which was split up to form Tyco Electronics – now TE – and Covidien.

More in store?

There could be more deals on the cards, with Roche rumoured to be considering buying the gene sequencing specialist Pacific Biosciences. The deal would make sense – the two companies already work together, and Roche has shown interest in the sequencing arena.

Indeed, since Roche failed to bag Illumina in 2012 and said it would close its 454 Life Sciences sequencing subsidiary in 2013, it has made several smaller deals in this or overlapping segments, purchasing the likes of Genia Technologies and a liquid biopsy developer, Capp Medical. 

It will not be surprising if there are more additions to the medtech M&A flurry. Even so, the industry will have little chance of beating the dizzy heights reached last year.

To contact the writer of this story email Madeleine Armstrong in London at madeleinea@epvantage.com or follow @medtech_ma on Twitter

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